Abstract

Using the URL or DOI link below will
ensure access to this page indefinitely

Based on your IP address, your paper is being delivered by:

New York, USA

Processing request.

Illinois, USA

Processing request.

Brussels, Belgium

Processing request.

Seoul, Korea

Processing request.

California, USA

Processing request.

If you have any problems downloading this paper,please click on another Download Location above, or view our FAQFile name: SSRN-id2371283. ; Size: 290K

You will receive a perfect bound, 8.5 x 11 inch, black and white printed copy of this PDF document with a glossy color cover. Currently shipping to U.S. addresses only. Your order will ship within 3 business days. For more details, view our FAQ.

Quantity:Total Price = $9.99 plus shipping (U.S. Only)

If you have any problems with this purchase, please contact us for assistance by email: Support@SSRN.com or by phone: 877-SSRNHelp (877 777 6435) in the United States, or +1 585 442 8170 outside of the United States. We are open Monday through Friday between the hours of 8:30AM and 6:00PM, United States Eastern.

What We Don’t Talk About When We Talk About Banking

The run on the shadow banking system in 2008 is routinely identified as the event that transformed the nonprime mortgage securities meltdown into a full-blown Global Financial Crisis. Yet, the components of this shadow sector have not been brought into the light let alone under adequate regulatory supervision. The government-initiated reform measures enacted to date lack consistency and cohesion. Too little attention has been paid to how the varied pieces of this system interconnect with each other and with “real” banking.

For example, the multi-trillion dollar repurchase agreement (“repo”) market was ground zero for the sudden, severe withdrawal of liquidity from the banking system in the United States. Yet little has been done to address the dependence upon this short-term, often overnight funding market. Conversely, some shadow players like money market mutual funds, (MMFs) that were already subject to heavy structural controls, have been further regulated. While these new rules were designed to strengthen the funds, making them less prone to runs by their own investors, these same changes may create even more instability and risk for bank and shadow bank counterparties who depend upon them for short-term financing. Additionally, with regard to some of the most risky “nonbank” financial firms, such as hedge funds, the regulatory reform measures to date have been flimsy at best.

Accordingly, this chapter first will describe what is meant by “shadow banking,” and the role it played in the financial crisis. Next, it will highlight two key components of shadow banking system: MMFs and the repo market, including the regulatory reforms accomplished to date and proposals being studied. And, finally it will present alternative suggestions for further reform.

Date posted: March 15, 2011
; Last revised: December 23, 2013

Suggested Citation

Taub, Jennifer, What We Don’t Talk About When We Talk About Banking (February 10, 2011). OXFORD HANDBOOK OF THE POLITICAL ECONOMY OF FINANCIAL CRISES, Gerald Epstein, Martin H. Wolfson, eds.,
Oxford University Press, 2013. Available at SSRN: http://ssrn.com/abstract=1784365